Working Paper: NBER ID: w18144
Authors: Martin L. Weitzman
Abstract: Suppose that there is a probability density function for how bad things might get, but that the overall rate at which this probability density function slims down to approach zero in the tail is uncertain. The paper shows how a basic precautionary principle of tail fattening could then apply. The worse is the contemplated damage, the more should a decision maker consider the bad tail to be among the relatively fatter-tailed possibilities. A rough numerical example is applied to the uncertain tail distribution of climate sensitivity.
Keywords: No keywords provided
JEL Codes: Q5; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Uncertainty in tail behavior (C46) | Decision-making process (D87) |
| Severity of potential damage (H84) | Assessment of tail probabilities (C46) |
| Decision-making process (D87) | Consideration of fatter-tailed distributions (C46) |
| Uncertainty in tail behavior (C46) | Consideration of fatter-tailed distributions (C46) |